Law and Justice Foundation - Abuse of enduring powers of attorney

The potential for abuse of EPOAs derives primarily from three factors:

that the principal is suffering from unsoundness of mind, and thus will have minimal capacity to effectively monitor the activities of his or her attorney
that highly trusted family members and relatives are most commonly appointed as attorneys
that there is generally a limited understanding of the powers and duties of the attorney among both the principals and the attorneys themselves.

One of the more insidious forms of abuse involves cases where an EPOA is arranged on behalf of an older person who does not have the requisite capacity to make the power.

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Such cases do not necessarily involve abuse. In some instances an EPOA may be made in the best interests of an older person who has failed to make arrangements for such an event, while he or she had the capacity to do so. However, in other cases, an EPOA may be used to take advantage of the older person. Further, the potential for this type of abuse may incite a fear by an older person that the EPOA may be activated on a false representation of lack of capacity. One focus group participant expressed this fear:

... hypothetically, now just say I couldn’t do anything say tomorrow myself. Does the person I’ve nominated go to the solicitor and say I have the power of attorney? And how does he know that he’s telling the truth and that something has happened to me?

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More common is abuse in the form of an attorney’s breach of the fiduciary relationship. Such a relationship is characterised by a high level of trust and confidence which in turn imposes a high level of responsibility or ‘duty of care.’ Breach of the fiduciary relationship generally occurs where the attorney takes a benefit for him or herself from the exercise of power not expressly authorised by the instrument creating it. The fiduciary relationship may also be breached where the attorney uses the principal’s assets to provide maintenance for a third party, or to give gifts to third parties on behalf of the principal where such acts are not authorised by the power.

Cases of attorneys wrongly taking benefits for themselves are not restricted to attorneys acting without regard for the principal’s interests, but include situations where

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For example, an attorney justifying the use of the principal’s money to purchase an expensive motor vehicle that almost exclusively was used for the attorney’s benefit, on the basis of needing the vehicle to travel to visit the principal.¹⁶

The Powers of Attorney Act 2003 (NSW) (“the Act”) has attempted to address some of these issues. Under the new Act, an EPOA will not commence to operate until the attorney has accepted appointment by signing the power of attorney document.¹⁷ Furthermore, the Act replaces the statutory short form of power of attorney with a more comprehensive form. The new form contains more information and more choices to enable people to make a better-informed decision about what they want their attorney to do.

It provides detailed information for principals and attorneys about their respective rights and responsibilities.

The Act also clarifies what an attorney can or cannot do in certain situations. In particular, a power of attorney drafted in the prescribed form under Schedule 2 of the Act (a “prescribed power of attorney”) does not authorise an attorney to:

give a gift of all or any of the principal’s property to any other person unless the power of attorney expressly authorises the giving of the gift¹⁸
signing any document or doing anything that would result in the attorney gaining a benefit at the expense of the principal or conferring a benefit on third parties, unless the power of attorney expressly so authorises¹⁹
signing any document or doing anything that would result in a third party gaining a benefit unless the power of attorney expressly so authorises.²⁰

In relation to the issue of gifts, Schedule 3 of the Act specifies a prescribed expression, which stipulates that the principal authorises his or her attorney to give ‘reasonable gifts’. The schedule goes on to specify what gifts are included in this expression, namely:

a gift to a relative or close friend of the principal
a gift of a seasonal nature or because of a special event (e.g. birth or marriage)
a donation of the nature that the principal made when he or she had capacity, or the principal might reasonably be expected to make.²¹

Prior to the passing of the Powers of Attorney Act 2003 (NSW), the children of a deceased man who, five days before executing his will, granted an EPOA to another child, challenged the validity of the acts of the attorney, in the NSW Supreme Court. The attorney had used the power to withdraw $55,000 from the deceased principal’s account and transfer to himself the family home for the consideration of $1. In the absence of evidence to suggest that the deceased had wished to vary his will, or that he was aware of the attorney’s acts, the Court concluded that the attorney had ignored the conflict of interest between the deceased and himself. It was held that his actions amounted to an abuse of his position as attorney in that he had made a profit from the transactions while going against the testamentary intention of his father.

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Another potential area of abuse lies with the issue of the commencement of the EPOA. In most cases for protected powers of attorney made prior to the Powers of Attorney Act 2003 (NSW), an individual intending to create an EPOA would simply have completed the prescribed POA form under Conveyancing Act 1919, and include the clause allowing for the power to continue, notwithstanding the principal becoming of unsound mind, without adding any further restrictions or conditions. In such a case, the enduring power would take effect immediately upon execution, thereupon permitting the attorney to act pursuant to the authority granted immediately, rather than when the principal intends for the POA to be acted upon—only after he or she no longer has the ability to look after their own affairs.

The principal could guard against this possibility by maintaining possession of the POA document, or entrusting its security to a lawyer or other confidant. However, this entails the risk that the POA instrument is overlooked or misplaced at the intended time of use.

The Powers of Attorney Act 2003 (NSW) has attempted to address some of these issues as well. In particular, in the prescribed form, there are three alternative clauses as to when the EPOA is to become effective (either immediately after the attorney has accepted, on a specified date, or when the attorney considers that the principal needs assistance managing his or her affairs).²³ The person making the EPOA must therefore give some thought as to when they want it to come into effect. If the third option is taken, and the principal disagrees with the attorney’s belief that the principal needs assistance, an application can be made to the Guardianship Tribunal for a review.²⁴

The Powers of Attorney Act 2003 (NSW) also provides for greater review of both EPOAs made after the Act, and existing protected powers of attorney which were made prior to the operation of the new Act. Under the Act, the Guardianship Tribunal has powers to make a range of orders in relation to EPOAs, including:

removing the attorney
declaring the EPOA invalid
appointing a substitute attorney
varying the term of the power
declaring that the principal did or did not have the requisite mental capacity
directing the attorney to furnish accounts or lodge copies of records
requiring the attorney to submit a financial management plan.²⁵

Interested persons who may make an application to Tribunal for review include:

an attorney
the principal
any person who is a guardian or an enduring guardian of the principal
any other person who, in the opinion of the Tribunal, has a proper interest in the proceedings or a genuine concern for the welfare of the principal.²⁶

As well as giving these review powers to the Guardianship Tribunal, the Act preserves and expands the role of the NSW Supreme Court in reviewing EPOAs. Appeals against decisions of the Tribunal in relation to questions of law can be made to the Supreme Court.²⁷ An appeal may be made to the Administrative Decisions Tribunal against all other Guardianship Tribunal decisions.²⁸

The two main issues regarding the accessibility of the Guardianship Tribunal relate to the right of representation in proceedings before the Tribunal, and the limitations of the review procedures of Tribunal decisions. These issues are dealt with more fully below, under Guardianship and Financial Management (see page 319).

The extension of the Guardianship Tribunal’s jurisdiction allows for a more accessible forum to review situations of potential abuse or maladministration by an appointed attorney. When considering a similar provision, the Queensland Law Reform Commission stated:

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